Handouts With a Twist: Rebuilding America’s Infrastructure

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CreditCreditLisk Feng

By Robert H. Frank

Nov. 11, 2016

Describing the relentless pace at which machines were replacing horses a century ago, the economic historian Gregory Clark noted that if horses could have been hired at a certain price, they would have remained competitive. Unfortunately, he said, that price had dropped “so low that it did not pay for their feed.”

Redistributive taxation has always been a fraught subject in America. It is thus encouraging that many prominent conservatives now favor a system of basic income guarantees. In the conservative policy journal Cato Unbound, for example, Matt Zwolinski advocated scrapping our complex and “paternalistic” welfare system in favor of an annual cash grant to every citizen.

In many ways, it’s an appealing idea. But given the realities of American political culture, cash transfers alone cannot solve the problem. They might work, though, if combined with another initiative: an offer of employment as trainees in President-elect Donald J. Trump’s proposed initiative to rebuild the nation’s crumbling infrastructure.

Mr. Zwolinski’s basic income guarantee is essentially the negative income tax advocated in the 1950s by Milton Friedman, who won the Nobel in economic science in 1976. Every person would receive a cash grant from the government, irrespective of income or employment status. Other sources of income would be taxed as usual, so that people with moderate to high incomes would still be net taxpayers. Friedman advocated a grant just above the poverty threshold, currently about $25,000 a year for a family of four.

One stumbling block is that such a payment would enable large groups to pool their resources and live very comfortably at taxpayer expense. For example, a group of 10 families could form a commune and supplement their $250,000 in cash grants with the untaxed fruits of gardening and animal husbandry. In some states, they could also grow marijuana legally, both for sale and personal consumption. Days would be free for sipping lattes and debating politics and the arts, or for practicing their guitars, reading novels, writing poetry or skinny-dipping in the pond.

The number of people forsaking paid employment in favor of lives like these might be small, but there would inevitably be some. And it would be only a matter of time before reveling commune members became a staple on the nightly news and social media. So despite its admirable simplicity, an income grant large enough to lift urban families from poverty would be politically unsustainable.

A smaller cash grant could still be an important policy tool, but we would need some way to supplement it without undercutting work incentives. One possibility would be to combine it with an open offer to pay subminimum wages for the performance of useful tasks in the public sphere.

Previous expansions of the nation’s infrastructure — such as the Works Progress Administration during the Great Depression and the Interstate Highway System initiative of the 1950s — have identified many useful tasks that could be done by properly supervised unskilled workers. Together, the earnings from such jobs plus the small basic income grant would exceed the poverty threshold.

Workers would have no incentive to leave existing private jobs, and participants in the public program would have strong incentives to move into more skilled private or government employment as quickly as possible, a transition the program would facilitate. The combined program would also parry the strongest objection to the earned-income tax credit, today’s leading income supplement program, which is that it doesn’t help those who cannot find employment.

To allay concern that a public service program would entail an expansion of government bureaucracy, management of the program could be relegated to private contractors. And although some might view the program as forced servitude, participation would be purely voluntary. The program would not alleviate poverty for those who chose not to work. But their poverty would then be a choice, not a condition imposed by the unavailability of jobs.

Lack of an adequate social safety net has entailed horrendous direct human costs, including the suffering of millions of hungry children. But the indirect costs have also been substantial, including those we incur because our aversion to cash transfers has constrained us to acknowledge the interests of the poor in less efficient ways. A case in point is our reluctance to adopt market-based measures like congestion pricing and effluent fees. The benefits of such policies, which have long been advocated by some of the economists who may be advising Mr. Trump, would far exceed the cost of the additional cash transfers required to cushion their impact on the poor.

Political scientists tell us that policies we adopt must be palatable to voters in the middle — in most cases, the people who make significant sacrifices to earn the incomes we tax to pay for social welfare programs. That many such voters would react angrily to footage of able-bodied people living it up at taxpayer expense ensures that cash grants alone will never constitute an adequate social safety net.

But a combined program of small cash grants and public service jobs would lie much more squarely within the self-help tradition of American politics. We could provide more generous support for those most in need, while at the same time providing them with an opportunity to contribute directly to the nation’s prosperity.

ROBERT H. FRANK is an economics professor at the Johnson Graduate School of Management at Cornell University. Twitter: @econnaturalist.